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Asked 8/6/2010
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When 401K loan payments are deducted from an employee's check, this re-payment is NOT a "pre-tax" deduction, is it? I have an employee that is having 401k loan payments deducted from his paycheck. I do not think that the amount of the loan payment is a "pre-tax" deduction, (such as a 401K contribution), but rather just a "post-tax" deduction. Is this correct? Thank you. |
Answer 1/2 - Submitted 8/6/2010
Think of this way. When a 401k loan is made, there is an early withdrawal penalty but the loan amount is listed on his W2 for taxes the year he takes the loan out. Since the money is already taxed, the payment back is treated the same way as a contribution into the plan. The money will be taxed when wihdrawn later on, so loan payments should be treated as pre-tax
Answer 2/2 - Submitted 8/6/2010
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